IT share fall out cause for fire sales

Ian Mitchell

City briefing

It has been a week for fire sales, with Bright Station (formerly known as Dialog) picking up the...

Ian Mitchell

City briefing

It has been a week for fire sales, with Bright Station (formerly known as Dialog) picking up the technology that powered, Invensys stepping in to rescue Baan, and Computacenter's conditional bid for Compel.

Three different situations all made possible by the fall out in technology share prices.

Bright Station seems to have played a canny hand by acquiring the e-commerce and technology rights behind Boo's Web site and attempting to sign up its former IT staff, who will have learned valuable lessons in their time at the failed e-tailer. It is fair to say that Boo was ahead of its time in terms of technology, but this only serves to make the technology and the staff who created it more valuable. With a more disciplined management team this may well prove a shrewd investment by Bright Station. Looking at the wider issues, if the shake-out in dotcoms continues, more traditional companies looking to establish a "proper" Web presence could find the next set of Boo.coms a fertile hunting ground for IT staff with the Web skills and experience they need.

The Baan situation is very different. The company's problems are well documented, and it was entering a vicious circle where its precarious financial position was putting off potential customers and worrying its user base. The buyer, Invensys, is an industrial group which plans to cut 1,000 jobs at a restructuring cost of $400m in a bid to reach break-even within 12 months. This is not the first turnaround situation that Invensys has taken on, but given the nature of the ERP market it will be difficult to restore confidence in the Baan solution and promote it to new users.

Finally, the Computacenter/Compel deal highlights both the economies of scale to be achieved in desktop outsourcing as well as the ongoing turbulence in some sectors of the IT industry as a result of the Y2K lockdown. Computacenter has offered a conditional 275p a share for its smaller rival and although it may need to stump up a little more to seal the deal, the two companies are a complementary fit. They provide infrastructure services and support for medium to large organisations in both the public and private sector.

Lately, Compel shares have been down to 1997 levels on the back of two recent profits warnings, prompting the view that the Computacenter bid is opportunistic. Despite the squabble over the price, the logic is undeniable. As managing the desktop becomes more expensive, why not outsource it to companies which have invested in providing a quality service? And as more of the service is capable of being run remotely, so profit margins improve. So, in theory, Computacenter should be able to extract a higher profit from Compel's turnover than would be possible in a standalone business.

Ian Mitchell is an IT analyst with stockbroker Beeson Gregory. His opinions should not be construed as investment advice.

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